The operation of certain debt collection type services do not qualify for VAT exemption

This reference for a preliminary ruling concerned the liability to VAT on fees charged by AXA UK Plc (“AXA”) for certain payment collection and processing services which, AXA claimed, should be exempt from VAT.

AXA operates a range of service for dentists, one of the main which is the operation of payment plans between dentist and their patients. The patient enters into a contract with the dentist to pay the fixed fee spread over a number of months. AXA collects the payments due to that dentist from the patient and each month accounts to each dentist for the payments it has received from their patients. AXA withholds a percentage of these payments as a fee for its services.

In September 2006 the Commissioners raised an assessment for VAT on the services supplied based on a finding that the fees charged to the dentists were consideration for supplies of services that were subject to VAT.

AXA appealed the decisions; their argument was that the fees were exempt from VAT on the basis that they constituted consideration for a financial service falling within Article 13B(d)(3) of the Sixth Directive. The issue for the Court of Appeal was whether the exemption for VAT provided for in Article 13B(d)(3) of the Sixth Directive applied to services provided by AXA. The Court considered that the result depended on the interpretation of European Union law and therefore referred the issue to the ECJ for a preliminary ruling.

The first question addressed by the ECJ was whether AXA supplied its clients with several distinct and independent services requiring separate assessment or a single complex service comprising several elements. The actions performed by AXA as examined for the purposes of VAT, were held to be “indissociably connected”. Therefore, the service supplied by AXA was regarded as forming a single transaction for the purposes of VAT. The next consideration was whether the services provided fell under the term ‘debt factoring’. According to the Court's case-law, the term ‘debt collection and factoring’ in Article 13B(d)(3) of the Sixth Directive refers to financial transactions designed to obtain payment of a pecuniary debt. It followed then that the services provided by AXA to dentists was essentially ‘debt collection and factoring’.

The Court concluded that the reply to the question referred was that exemption from VAT provided for by Article 13B(d)(3) of the Sixth Directive does not cover a supply of services which consist, in essence, of debt collection services. Therefore, the ECJ upheld HMRC's view and found that the services provided by AXA in this case were subject to VAT.

The full text of the judgment is available at http://curia.europa.eu